“It can’t happen here!”
or could it?
The bookkeeper of a bakery stole over $16 million from his Texas employer using a simple trick that will work in many churches. Would it work at your church?
As my friend Charles Hall writes in his Hall Talk for CPAs, the bookkeeper would write a manual check to himself or his credit card company without recording it in the system. As a signatory on the account, he then signed it and used it for his personal purposes.
To disguise the theft, he would print a check to a real vendor in the same amount as the fraudulent check. He then destroyed this second check, but the records showed a payment charged to a real expense account and with a payment showing to a real vendor.
…and who would ever know?
This bookkeeper drove lovely cars, owned a $58,000 electronic Steinway piano, traveled extensively, and owned a jewelry collection (including 98 watches) worth almost $4 million.
In this fraud, the bank reconciliation shows no old outstanding checks and the balance reconciles to the bank.
More than one reader is asking themselves – could this fraud work in my church? Some of you will find out that it could. And some of you may find that it has all ready been working in your church.
Internal Controls are the Answer
The “ancient path” of good internal controls remains the answer to prevent these frauds. While no one of the following controls might be sufficient by itself to stop the fraud, several of them in concert will cure the weaknesses that allow thefts like this to happen. Consider these steps.
Never let the check writer be a signatory.
Never let the check writer mail the checks after signature.
Always perform the bank reconciliation promptly at the beginning of the month.
Have someone other than the check writer reconcile the bank account. This should be someone who has the knowledge or instinct to sense when something looks “funny” and the courage to ask some hard questions.
Be aware that the bank reconciliation can be the “graveyard” of fraudulent transactions. Checks can appear as old disbursements from the bank that have not been entered on the church books.
Be suspicious when someone of modest income demonstrates an upscale lifestyle.
Consider installing Bill.com as an electronic control and payment system. It incorporates these types of controls and it allows access using smartphones increasing the convenience of the church leaders/volunteers.
Are you concerned? Call Wisdom Over Wealth at 877-823-3101 to discuss improving the internal controls at your church to prevent this from happening!
